Nearly $600 Million in Cuts Proposed for 2003-04 Fiscal Year

New York Governor George Pataki proposed an Executive Budget for State fiscal year (SFY) 2003-04 that, through a combination of a gross receipts tax and new Medicaid cuts, would cause $596 million in hospital losses in SFY 2003-04 and $682 million in losses in SFY 2004-05 statewide. This proposal comes as hospitals are being asked to add a new role to their traditional health care responsibilities—as a key component of the frontline defense against nuclear, biological, and chemical events. And so far, hospitals have undertaken this role without an infusion of significant funds from either the Federal or State government to offset the added costs of this new responsibility.

While the gross receipts tax proposed in the Budget is across the board, the proposed Medicaid cuts would be applied to hospitals differently, depending upon the hospital's share of Medicaid patients and the extent to which the hospital was directly affected by the specific provisions in the

Executive Budget. The cuts include a permanent elimination of trend factor increases, limiting the case payment rate to the "group average" for all diagnosis-related groups (DRGs), eliminating a length of stay (LOS) offset to a negative volume adjustment, cuts in per diem rates and freezing of specialty clinic rates, and eliminating certain part-time clinics (see table).

The Governor's proposal would also cut indirect medical education (IME) payments though two separate cuts. The first cut would potentially mix the data sources for the resident count and bed count used in the calculation of IME by using the lower of the 1990 or rate-year resident count together with the 1990 bed count, which is generally higher than the rate-year bed count. This proposal would essentially make the intern and resident-to-bed ratio, which is the methodological underpinning of the IME payment system that determines "teaching intensity," a fiction. The second IME cut would lower the adjustment from the current 7.7% used in the Medicaid IME calculation to 5.5%.

Based on a thorough GNYHA analysis, the average New York hospital loss caused by the Medicaid inpatient cuts will be 9% of baseline Medicaid inpatient revenues. Due to the mix of Medicaid services downstate, NYC hospitals would, in the aggregate, experience a 10% drop in Medicaid revenues. For individual hospitals, the losses would range from 2% to nearly half (48%) of the hospital's baseline Medicaid revenue. In the aggregate, when added to current hospital operating losses of $337 million in 2001, the Governor's budget would cause hospital losses around the State to increase to $1 billion. As GME Central went to press, it appeared that both houses of the Legislature were prepared to reject the Governor's proposed cuts.

Health Care Reform Act
While the Governor proposed renewing the Health Care Reform Act of 2000 (HCRA), with funding levels for indigent care and graduate medical education remaining the same, it is noteworthy that the proposal included a diversion of funds from the Community Health Care Conversion Demonstration Project (CHCCDP) to displace what are technically cuts in those pools. That is, a total of $350 million in CHCCDP funds intended to support hospital conversion to a system of mandatory Medicaid managed care through primary care development, managed care readiness, and worker retraining would instead be used to offset these HCRA cuts.

Other HCRA cuts include a reduction of the eligibility income cap for the Family Health Plus program from 150% of the Federal poverty level to 133%, new co-payments and prior authorization requirements included in the Elderly Pharmaceutical Insurance Coverage program, and $135 million in other miscellaneous pool cuts.